How to start investing even if you don't have much money, YET. Shutterstock
There’s a rampant myth that you need a lot of money to start investing in stocks, mutual funds and Exchange Traded Funds (ETFs). This falsehood may play a part in why so few people actually own investments. You will never get rich by stashing your money under a mattress or in a bank account. In order to build wealth, you will need to invest your money over time.
Here are four tips to start investing even if you don't have much money.
You can get started investing with small amounts of money: When I was just out of college, and before I even had a full-time job lined up, a good friend encouraged me to open a Roth IRA. I took his advice and set up an automatic contribution of just $25 per month. That’s less than $1 per day. If you’re reading this you can find a way to come up with $1 per day. No matter how small you start, the most important thing is to get started. You can always increase the amount you save over time. I’m saving way more than $25 per month now. But it took time to grow my savings rate to its current level. I was amazed how I didn’t miss the money and you most likely will be as well.
Get your 401k match at the bare minimum – You’ll want to kick yourself later on in life if you don’t get your full company match each and every year. This is like a raise without doing any extra work and can range from two percent to sometimes as high as 15% of your annual salary depending on your employer. The money comes to you pre-tax and, depending on your age and how you invest, could turn into huge sums of money later in life. Did I mention that the matching portion is like free money from your employer? You’d have to be crazy not to do everything in your power to get every single cent of it each and every year. In addition, you’ll receive a tax deduction for the money you put in thereby lowering your tax bill!
Skipping your 401(k) match can turn into a million dollar-plus mistake. For example, the average person typically misses out on approximately $1,336 per year in employer matches. If that $1,336 was invested in a 401(k) plan each year, from the age of 22 to 67, and assuming an average return of 10% per year, how much do you think you would have at retirement? That $1,336 per year, with an average return of 10%, would grow to more than $960,000 by the time you were 67. That number alone is well beyond what the average person has saved for retirement.
You’ll never be rich if you don’t invest - When I speak to large groups, I run into countless people who are scared of investing and the stock market in general. While I know that many people are still shell-shocked from the financial crisis, the sad reality is that most people will never achieve financial freedom if they don’t invest their money. I would go as far as to say the biggest stock market risk out there is not investing.
Let compounding interest work its magic - I can’t say this enough. Start investing asap. The earlier you start the heavier lifting will be taken off your shoulders by compounding interest.
For example, saving just $100 per month, from 22 to 67, equates to approximately $1,048,000 provided you earn 10% growth per year. Waiting until you’re 32 years old to get started will cause that number to drop to $379,000. As you can see, waiting 10 years will result in a loss of about 64% of your retirement nest egg, all else being equal. (Ok, maybe you shouldn’t expect to earn 10% a year. The point still holds. At a 7% annual return, you’ll have about $379,000 if you get started at 22, but just around $180,00 if you wait until 32.)
Take control of your finances and make smarter financial decisions today. The sooner you get started the easier it will be to get on track for your financial goals, whatever they may be. Even if you have to start small, get started. You may not be rich yet, but you will never be if you don’t get started.